Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
Commission File Number 001-33289

http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11219574&doc=15
ENSTAR GROUP LIMITED
(Exact name of Registrant as specified in its charter)
BERMUDA
N/A
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

Windsor Place, 3rd Floor, 22 Queen Street, Hamilton HM JX, Bermuda
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (441) 292-3645

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
 
Accelerated filer
¨
 
Non-accelerated filer
¨
 
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
As of November 8, 2016, the registrant had outstanding 16,227,500 voting ordinary shares and 3,130,408 non-voting convertible ordinary shares, each par value $1.00 per share.
 


Table of Contents



Enstar Group Limited
Quarterly Report on Form 10-Q
For the Period Ended September 30, 2016

Table of Contents
 
 
 
Page
PART I
 
 
 
 
Item 1.
Item 2.
Item 3.
Item 4.
 
 
 
PART II
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 6.


Table of Contents


PART I — FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2016 and December 31, 2015
 
September 30,
2016
 
December 31,
2015
 
(expressed in thousands of U.S. dollars, except share data)
ASSETS
 
 
 
Short-term investments, trading, at fair value
$
119,680

 
$
87,350

Short-term investments, available-for-sale, at fair value (amortized cost: 2016 — $793; 2015 — $8,630)
792

 
8,622

Fixed maturities, trading, at fair value
5,036,054

 
4,990,794

Fixed maturities, held-to-maturity, at amortized cost
762,602

 
790,866

Fixed maturities, available-for-sale, at fair value (amortized cost: 2016 — $295,197; 2015 — $300,160)
299,324

 
293,679

Equities, trading, at fair value
120,350

 
115,941

Other investments, at fair value
985,696

 
1,034,032

Other investments, at cost
129,431

 
133,071

Total investments
7,453,929

 
7,454,355

Cash and cash equivalents
769,039

 
821,925

Restricted cash and cash equivalents
517,870

 
511,339

Premiums receivable
404,109

 
381,412

Deferred tax assets
112,983

 
121,035

Prepaid reinsurance premiums
129,921

 
121,427

Reinsurance balances recoverable
1,278,988

 
1,474,004

Funds held by reinsured companies
1,140,695

 
109,358

Deferred acquisition costs
103,064

 
89,123

Goodwill and intangible assets
186,343

 
191,304

Other assets
373,979

 
556,850

TOTAL ASSETS
$
12,470,920

 
$
11,832,132

 
 
 
 
LIABILITIES
 
 
 
Losses and loss adjustment expenses
$
6,145,569

 
$
5,720,149

Policy benefits for life and annuity contracts
1,280,008

 
1,304,697

Unearned premiums
549,552

 
542,771

Insurance and reinsurance balances payable
271,840

 
274,598

Deferred tax liabilities
93,936

 
92,588

Loans payable
570,618

 
600,250

Other liabilities
322,921

 
358,633

TOTAL LIABILITIES
9,234,444

 
8,893,686

 
 
 
 
COMMITMENTS AND CONTINGENCIES

 

 
 
 
 
REDEEMABLE NONCONTROLLING INTEREST
455,545

 
417,663

 
 
 
 
SHAREHOLDERS’ EQUITY
 
 
 
Share capital authorized, issued and fully paid, par value $1 each (authorized 2016 and 2015: 156,000,000):

 

Ordinary shares (issued and outstanding 2016: 16,171,378; 2015: 16,133,334)
16,171

 
16,133

Non-voting convertible ordinary shares:
 
 
 
Series A (issued 2016: nil; 2015: 2,972,892)

 
2,973

Series C (issued and outstanding 2016: 2,725,637; 2015: 2,725,637)
2,726

 
2,726

Series E (issued and outstanding 2016: 404,771; 2015: 404,771)
405

 
405

Series C Preferred Shares (issued and outstanding 2016: 388,571; 2015: nil)
389

 

Treasury shares at cost (Preferred shares 2016: 388,571; Series A non-voting convertible ordinary shares 2015: 2,972,892)
(421,559
)
 
(421,559
)
Additional paid-in capital
1,379,389

 
1,373,044

Accumulated other comprehensive loss
(17,333
)
 
(35,162
)
Retained earnings
1,817,266

 
1,578,312

Total Enstar Group Limited Shareholders’ Equity
2,777,454

 
2,516,872

Noncontrolling interest
3,477

 
3,911

TOTAL SHAREHOLDERS’ EQUITY
2,780,931

 
2,520,783

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY
$
12,470,920

 
$
11,832,132

See accompanying notes to the unaudited condensed consolidated financial statements

1

Table of Contents


ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three and Nine Months Ended September 30, 2016 and 2015
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
(expressed in thousands of U.S.
dollars, except share and per share data)
INCOME
 
 
 
 
 
 
 
Net premiums earned
$
223,395

 
$
231,051

 
$
659,732

 
$
641,980

Fees and commission income
6,995

 
8,977

 
19,585

 
29,588

Net investment income
57,546

 
40,796

 
171,832

 
105,867

Net realized and unrealized gains (losses)
70,422

 
(15,130
)
 
146,373

 
16,641

Other income
610

 
2,373

 
7,071

 
17,688

 
358,968

 
268,067

 
1,004,593

 
811,764

EXPENSES
 
 
 
 
 
 
 
Net incurred losses and loss adjustment expenses
(6,902
)
 
32,359

 
172,778

 
168,395

Life and annuity policy benefits
21,753

 
22,989

 
62,511

 
73,926

Acquisition costs
52,544

 
49,806

 
146,298

 
121,450

General and administrative expenses
104,991

 
100,335

 
305,315

 
290,896

Interest expense
5,027

 
5,156

 
15,852

 
14,035

Net foreign exchange losses (gains)
2,320

 
(841
)
 
2,236

 
(3,460
)
 
179,733

 
209,804

 
704,990

 
665,242

EARNINGS BEFORE INCOME TAXES
179,235

 
58,263

 
299,603

 
146,522

INCOME TAXES
(8,858
)
 
(12,262
)
 
(24,840
)
 
(28,822
)
NET EARNINGS
170,377

 
46,001

 
274,763

 
117,700

Less: Net losses (earnings) attributable to noncontrolling interest
(14,329
)
 
3,041

 
(32,601
)
 
(9,266
)
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
156,048

 
$
49,042

 
$
242,162

 
$
108,434

EARNINGS PER SHARE — BASIC
 
 
 
 
 
 
 
Net earnings per ordinary share attributable to Enstar Group Limited shareholders
$
8.09

 
$
2.55

 
$
12.55

 
$
5.63

EARNINGS PER SHARE — DILUTED
 
 
 
 
 
 
 
Net earnings per ordinary share attributable to Enstar Group Limited shareholders
$
8.02

 
$
2.53

 
$
12.46

 
$
5.59

Weighted-average ordinary shares outstanding — basic
19,299,038

 
19,256,184

 
19,292,450

 
19,248,737

Weighted-average ordinary shares outstanding — diluted
19,449,430

 
19,408,627

 
19,432,658

 
19,387,285


See accompanying notes to the unaudited condensed consolidated financial statements


2

Table of Contents


ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Nine Months Ended September 30, 2016 and 2015
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
(expressed in thousands of U.S. dollars)
NET EARNINGS
$
170,377

 
$
46,001

 
$
274,763

 
$
117,700

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Unrealized holding gains (losses) on fixed income investments arising during the period
1,668

 
(2,002
)
 
10,762

 
(4,196
)
Reclassification adjustment for net realized losses (gains) included in net earnings
(282
)
 
(27
)
 
(147
)
 
(171
)
Unrealized gains (losses) arising during the period, net of reclassification adjustment
1,386

 
(2,029
)
 
10,615

 
(4,367
)
Currency translation adjustment
2,803

 
(11,290
)
 
8,856

 
(23,877
)
Total other comprehensive income (loss)
4,189

 
(13,319
)
 
19,471

 
(28,244
)
Comprehensive income
174,566

 
32,682

 
294,234

 
89,456

Less comprehensive loss (income) attributable to noncontrolling interest
(14,321
)
 
2,326

 
(34,240
)
 
(3,843
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
160,245

 
$
35,008

 
$
259,994

 
$
85,613


See accompanying notes to the unaudited condensed consolidated financial statements


3

Table of Contents


ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Nine Months Ended September 30, 2016 and 2015
 
Nine Months Ended
September 30,
 
2016
 
2015
 
(expressed in thousands of U.S. dollars)
Share Capital — Ordinary Shares
 
 
 
Balance, beginning of period
$
16,133

 
$
15,761

Issue of shares
38

 
58

Conversion of Series E Non-Voting Convertible Ordinary Shares

 
309

Balance, end of period
$
16,171

 
$
16,128

Share Capital — Series A Non-Voting Convertible Ordinary Shares
 
 
 
Balance, beginning of period
$
2,973

 
$
2,973

Shares converted to Series C Convertible Participating Non-Voting Perpetual Preferred Stock
(2,973
)
 

Balance, end of period
$

 
$
2,973

Share Capital — Series C Non-Voting Convertible Ordinary Shares
 
 
 
Balance, beginning and end of period
$
2,726

 
$
2,726

Share Capital — Series E Non-Voting Convertible Ordinary Shares
 
 
 
Balance, beginning of period
$
405

 
$
714

Conversion to Ordinary Shares

 
(309
)
Balance, end of period
$
405

 
$
405

Share Capital — Series C Convertible Participating Non-Voting Perpetual Preferred Stock
 
 
 
Balance, beginning of period
$

 
$

Conversion of Series A Non-Voting Convertible Ordinary Stock
389

 

Balance, end of period
$
389

 
$

Treasury Shares
 
 
 
Balance, beginning and end of period
$
(421,559
)
 
$
(421,559
)
Additional Paid-in Capital
 
 
 
Balance, beginning of period
$
1,373,044

 
$
1,321,715

Issue of shares and warrants
1,023

 
1,352

Conversion of Series A Non-Voting Convertible Ordinary Stock
2,584

 

Amortization of equity incentive plan
2,738

 
4,504

Equity attributable to Enstar Group Limited on acquisition of noncontrolling shareholders’ interest in subsidiaries

 
41,697

Balance, end of period
$
1,379,389

 
$
1,369,268

Accumulated Other Comprehensive Income (Loss)
 
 
 
Balance, beginning of period
$
(35,162
)
 
$
(12,686
)
Currency translation adjustment
 
 
 
Balance, beginning of period
(23,790
)
 
(2,779
)
Change in currency translation adjustment
8,852

 
(22,501
)
Purchase of noncontrolling shareholder's interest in subsidiaries

 
2,937

Balance, end of period
(14,938
)
 
(22,343
)
Defined benefit pension liability
 
 
 
Balance, beginning and end of period
(7,723
)
 
(7,726
)
Unrealized gains (losses) on investments
 
 
 
Balance, beginning of period
(3,649
)
 
(2,181
)
Change in unrealized gains (losses) on investments
8,977

 
(3,569
)
Purchase of noncontrolling shareholders’ interest in subsidiaries

 
312

Balance, end of period
5,328

 
(5,438
)
Balance, end of period
$
(17,333
)
 
$
(35,507
)
Retained Earnings
 
 
 
Balance, beginning of period
$
1,578,312

 
$
1,395,206

Net earnings attributable to Enstar Group Limited
242,162

 
108,434

Accretion of redeemable noncontrolling interests to redemption value
(3,208
)
 

Balance, end of period
$
1,817,266

 
$
1,503,640

Noncontrolling Interest (excludes Redeemable Noncontrolling Interest)
 
 
 
Balance, beginning of period
$
3,911

 
$
217,970

Sale of noncontrolling shareholders' interest in subsidiaries

 
(195,347
)
Dividends paid

 
(733
)

4

Table of Contents


Contribution of capital

 
680

Net earnings (losses) attributable to noncontrolling interest
(434
)
 
(308
)
Foreign currency translation adjustments

 
(1,558
)
Net movement in unrealized holding losses on investments

 
(135
)
Balance, end of period
$
3,477

 
$
20,569

 
See accompanying notes to the unaudited condensed consolidated financial statements

5

Table of Contents


ENSTAR GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2016 and 2015
 
Nine Months Ended
September 30,
 
2016
 
2015
 
(expressed in thousands
 of U.S. dollars)
OPERATING ACTIVITIES:
 
 
 
Net earnings
$
274,763

 
$
117,700

Adjustments to reconcile net earnings to cash flows used in operating activities:
 
 
 
Net realized gains on sale of investments
(6,017
)
 
(18,561
)
Net unrealized (gains) losses on investments
(140,356
)
 
1,920

Other non-cash items
5,207

 
4,129

Depreciation and other amortization
35,449

 
42,659

Net change in trading securities held on behalf of policyholders
(1,276
)
 
(8,452
)
Sales and maturities of trading securities
2,298,560

 
2,690,081

Purchases of trading securities
(2,271,927
)
 
(3,189,379
)
Changes in:
 
 
 
Reinsurance balances recoverable
199,354

 
251,660

Funds held by reinsured companies
50,187

 
25,020

Losses and loss adjustment expenses
(779,291
)
 
(307,872
)
Policy benefits for life and annuity contracts
(28,856
)
 
(23,843
)
Insurance and reinsurance balances payable
(4,965
)
 
60,518

Unearned premiums
6,782

 
(13,396
)
Other operating assets and liabilities
124,217

 
(169,635
)
Net cash flows used in operating activities
(238,169
)
 
(537,451
)
INVESTING ACTIVITIES:
 
 
 
Acquisitions, net of cash acquired
$
9,924

 
$
56,369

Sales and maturities of available-for-sale securities
64,865

 
113,128

Purchase of available-for-sale securities
(52,865
)
 
(65,036
)
Maturities of held-to-maturity securities
20,844

 
6,520

Movement in restricted cash and cash equivalents
94,940

 
370,434

Purchase of other investments
(69,297
)
 
(189,164
)
Redemption of other investments
155,420

 
62,732

Other investing activities
(2,693
)
 
(2,949
)
Net cash flows provided by investing activities
221,138

 
352,034

FINANCING ACTIVITIES:
 
 
 
Contribution by noncontrolling interest
$

 
$
680

Contribution by redeemable noncontrolling interest

 
15,728

Dividends paid to redeemable noncontrolling interest

 
(16,128
)
Dividends paid to noncontrolling interest

 
(733
)
Purchase of noncontrolling interest

 
(150,400
)
Receipt of loans
154,048

 
537,700

Repayment of loans
(186,250
)
 
(128,500
)
Net cash flows provided by (used in) financing activities
(32,202
)
 
258,347

EFFECT OF EXCHANGE RATE CHANGES ON FOREIGN CURRENCY CASH AND CASH EQUIVALENTS
(3,653
)
 
(10,280
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(52,886
)
 
62,650

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
821,925

 
963,402

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
769,039

 
$
1,026,052

 
 
 
 
Supplemental Cash Flow Information:
 
 
 
Income taxes paid, net of refunds
$
17,518

 
$
25,119

Interest paid
$
14,335

 
$
13,455


See accompanying notes to the unaudited condensed consolidated financial statements

6

Table of Contents


ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and December 31, 2015

(Tabular information expressed in thousands of U.S. dollars except share and per share data)
 
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation and Consolidation
These unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial statements reflect all adjustments consisting of normal recurring items considered necessary for a fair presentation under U.S. GAAP. The results of operations for any interim period are not necessarily indicative of results of the full year. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2015. Inter-company accounts and transactions have been eliminated. Results of operations for subsidiaries acquired are included from the dates on which we acquired them. In these notes, the terms "we," "us," "our," or "the Company" refer to Enstar Group Limited and its consolidated subsidiaries. Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings.
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ materially from these estimates. Results of changes in estimates are reflected in earnings in the period in which the change is made. Our principal estimates include, but are not limited to:
liability for losses and loss adjustment expenses ("LAE");
liability for policy benefits for life and annuity contracts;
reinsurance balances recoverable;
gross and net premiums written and net premiums earned;
impairment charges, including other-than-temporary impairments on investment securities classified as available-for-sale or held-to-maturity, and impairments on goodwill, intangible assets and deferred charges;
fair value measurements of investments;
fair value estimates associated with accounting for acquisitions; and
redeemable noncontrolling interests.
New Accounting Standards Adopted in 2016
Accounting Standards Update ("ASU") 2016-17, Consolidation - Interests Held through Related Parties that are under Common Control
In October 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-17, which amends the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (“VIE”) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The adoption of this guidance did not have a material impact on our consolidated financial statements and disclosures.
ASU 2015-16, Business Combinations, Simplifying the Accounting for Measurement-Period Adjustment
In September 2015, the FASB issued ASU 2015-16, which eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)




business combination is consummated. Under the new guidance, an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The adoption of this guidance did not have a material impact on our consolidated financial statements and disclosures.
ASU 2015-07, Disclosures for Investments in Certain Entities that Calculate Net Asset Value or its Equivalent
In May 2015, the FASB issued ASU No. 2015-07, which eliminates the requirement to categorize investments in the fair value hierarchy if their fair value is measured at the net asset value ("NAV") per share (or its equivalent) using the practical expedient in the FASB’s fair value measurement guidance. Instead, an entity is required to include those investments as a reconciling line item so that the total fair value amount of investments in the disclosure is consistent with the amount on the balance sheet. In addition, the scope of current disclosure requirements for investments eligible to be measured at NAV is limited to investments for which the practical expedient is applied. While the adoption of this guidance impacted our disclosures, it did not have an impact on our consolidated financial statements.
ASU 2015-02, Amendments to the Consolidation Analysis
In February 2015, the FASB issued ASU 2015-02, which requires entities to evaluate whether they should consolidate certain legal entities. The new consolidation guidance changes the way entities evaluate whether (1) they should consolidate limited partnerships and similar entities; (2) fees paid to a decision maker or service provider are variable interests in a VIE, and (3) variable interests in a VIE held by related parties of a registrant require the registrant to consolidate the VIE. The new guidance also eliminates the VIE consolidation model based on majority exposure to variability that applied to certain investment companies and similar entities. The ASU also significantly changes how to evaluate voting rights for entities that are not similar to limited partnerships when determining whether the entity is a VIE, which may affect entities for which decision making rights are conveyed through a contractual arrangement. The adoption of this guidance did not have a material impact on our consolidated financial statements and disclosures.
Recently Issued Accounting Pronouncements Not Yet Adopted
ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory
In October 2016, the FASB issued ASU 2016-16, which requires immediate recognition of the tax consequences of many intercompany asset transfers other than inventory. The ASU is effective for interim and annual reporting periods beginning after December 15, 2017, however early adoption is permitted. The guidance must be applied retrospectively and we are currently evaluating the impact of its adoption on our consolidated financial statements.
ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued ASU 2016-15, which amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows. The ASU is effective for interim and annual reporting periods beginning after December 15, 2017, however early adoption is permitted. The guidance must be applied retrospectively and we are currently evaluating the impact of its adoption on our consolidated financial statements.
ASU 2016-13, Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, which amends the guidance on impairment of financial instruments and significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU will replace the existing “incurred loss” approach, with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount under the existing other-than-temporary-impairment model. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. The ASU is effective for interim and annual reporting periods beginning after December 15, 2019. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-09, Improvements to Employee Share-Based Payment Accounting
In March 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The ASU is effective for interim and annual

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)




reporting periods beginning after December 15, 2016. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
In March 2016, the FASB issued ASU 2016-08, which amends the principal-versus agent implementation guidance and illustrations in its new revenue standard (ASU 2014-09). The ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. Similar to ASU 2014-09, this guidance is effective for interim and reporting periods beginning after December 15, 2017, as amended by the one-year deferral and the early adoption provisions in ASU 2015-14. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting
In March 2016, the FASB issued ASU 2016-07, which simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. Entities are therefore required to apply the guidance prospectively to increases in the level of ownership interest or degree of influence occurring after the ASU’s effective date. The ASU further requires that unrealized holding gains or losses in accumulated other comprehensive income related to an available-for-sale security that becomes eligible for the equity method be recognized in earnings as of the date on which the investment qualifies for the equity method. The ASU is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
ASU 2016-02, Leases
In February 2016, the FASB issued ASU 2016-02, which amends the guidance on the classification, measurement and disclosure of leases for both lessors and lessees. The ASU requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet and to disclose qualitative and quantitative information about leasing arrangements. The ASU is effective for interim and annual reporting periods beginning after December 15, 2018. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-01, Recognition and Measurement of Financial Instruments
In January 2016, the FASB issued ASU 2016-01, which amends the guidance on the classification and measurement of financial instruments. Although the ASU retains many of the current requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities, and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The ASU is effective for interim and annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
2. SIGNIFICANT NEW BUSINESS
2016
Coca-Cola
On August 5, 2016, we entered into a reinsurance transaction with The Coca-Cola Company and its subsidiaries (“Coca-Cola”) pursuant to which we reinsured certain of Coca-Cola’s retention and deductible risks under its subsidiaries’ U.S. workers’ compensation, auto liability, general liability, and product liability insurance coverage. We assumed total gross reserves of $108.8 million, received total assets of $101.3 million and recorded a deferred charge of $7.5 million, included in other assets. We have transferred approximately $108.8 million into a trust to support our obligations under the reinsurance agreements. We provided a limited parental guarantee, subject to an overall maximum of approximately $27.0 million.
Allianz
On March 31, 2016, we completed our previously announced transaction with Allianz SE ("Allianz") to reinsure portfolios of Allianz's run-off business. Pursuant to the reinsurance agreement effective January 1, 2016, our subsidiary reinsured 50% of certain portfolios of workers' compensation, construction defect, and asbestos, pollution, and toxic

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)




tort business originally held by Fireman's Fund Insurance Company, and assumed net reinsurance reserves of approximately $1.1 billion. Affiliates of Allianz retained approximately $1.1 billion of reinsurance premium as funds withheld collateral for the obligations of our subsidiary under the reinsurance agreement, and we transferred approximately $110.0 million to a reinsurance trust to further support our subsidiary's obligations. We earned interest on the funds withheld based upon an initial fixed interest rate for the nine months ended September 30, 2016 and thereafter we will receive a return based upon an underlying portfolio of investments. We have also provided a limited parental guarantee, which is subject to a maximum cap.  The combined monetary total of the support offered by us through the trust and parental guarantee is calculated in accordance with contractually defined terms and is capped at $270.0 million.
In addition to the reinsurance transaction described above, we have entered into a claims consulting agreement with San Francisco Reinsurance Company, an affiliate of Allianz, with respect to the entire $2.2 billion portfolio, including the 50% share retained by affiliates of Allianz.

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)




3. INVESTMENTS
We hold: (i) trading portfolios of fixed maturity investments, short-term investments and equities, carried at fair value; (ii) a held-to-maturity portfolio of fixed maturity investments carried at amortized cost; (iii) available-for-sale portfolios of fixed maturity and short-term investments carried at fair value; and (iv) other investments carried at either fair value or cost.
Trading
The fair values of our fixed maturity investments, short-term investments and equities classified as trading were as follows:
 
September 30,
2016
 
December 31,
2015
U.S. government and agency
$
819,021

 
$
750,957

Non-U.S. government
310,866

 
359,002

Corporate
2,606,905

 
2,631,682

Municipal
12,088

 
22,247

Residential mortgage-backed
472,228

 
391,247

Commercial mortgage-backed
284,147

 
284,575

Asset-backed
650,479

 
638,434

Total fixed maturity and short-term investments
5,155,734

 
5,078,144

Equities — U.S.
112,699

 
108,793

Equities — International
7,651

 
7,148

 
$
5,276,084

 
$
5,194,085

Included within residential and commercial mortgage-backed securities as at September 30, 2016 were securities issued by U.S. governmental agencies with a fair value of $445.1 million (as at December 31, 2015: $359.4 million). Included within corporate securities as at September 30, 2016 were senior secured loans of $89.3 million (as at December 31, 2015: $94.4 million).
The contractual maturities of our fixed maturity and short-term investments classified as trading are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
As at September 30, 2016
 
Amortized
Cost
 
Fair Value
 
% of Total
Fair
Value
One year or less
 
$
661,976

 
$
655,422

 
12.7
%
More than one year through two years
 
958,009

 
955,940

 
18.5
%
More than two years through five years
 
1,384,585

 
1,397,884

 
27.1
%
More than five years through ten years
 
544,337

 
554,881

 
10.8
%
More than ten years
 
172,642

 
184,753

 
3.6
%
Residential mortgage-backed
 
471,639

 
472,228

 
9.2
%
Commercial mortgage-backed
 
283,510

 
284,147

 
5.5
%
Asset-backed
 
651,418

 
650,479

 
12.6
%
 
 
$
5,128,116

 
$
5,155,734

 
100.0
%

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)




Held-to-maturity
We hold a portfolio of held-to-maturity securities to support our annuity business. The amortized cost and fair values of our fixed maturity investments classified as held-to-maturity were as follows: 
As at September 30, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Non-OTTI
 
Fair
Value
U.S. government and agency
 
$
19,793

 
$
1,237

 
$
(73
)
 
$
20,957

Non-U.S. government
 
27,554

 
695

 

 
28,249

Corporate
 
715,255

 
39,617

 
(1,082
)
 
753,790

 
 
$
762,602

 
$
41,549

 
$
(1,155
)
 
$
802,996

As at December 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Non-OTTI
 
Fair Value
U.S. government and agency
 
$
19,771

 
$
8

 
$
(458
)
 
$
19,321

Non-U.S. government
 
40,503

 
48

 
(1,493
)
 
39,058

Corporate
 
730,592

 
3,398

 
(23,298
)
 
710,692

 
 
$
790,866

 
$
3,454

 
$
(25,249
)
 
$
769,071

The contractual maturities of our fixed maturity investments classified as held-to-maturity are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. 
As at September 30, 2016
 
Amortized
Cost
 
Fair
Value
 
% of Total
Fair
Value
One year or less
 
$
11,979

 
$
11,990

 
1.5
%
More than one year through two years
 
31,613

 
31,747

 
4.0
%
More than two years through five years
 
59,104

 
60,872

 
7.6
%
More than five years through ten years
 
126,485

 
131,281

 
16.3
%
More than ten years
 
533,421

 
567,106

 
70.6
%
 
 
$
762,602

 
$
802,996

 
100.0
%

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)




Available-for-sale
The amortized cost and fair values of our fixed maturity and short-term investments classified as available-for-sale were as follows:
As at September 30, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Non-OTTI
 
Fair
Value
U.S. government and agency
 
$
12,786

 
$
95

 
$

 
$
12,881

Non-U.S. government
 
93,077

 
3,078

 
(2,297
)
 
93,858

Corporate
 
178,441

 
4,758

 
(1,656
)
 
181,543

Municipal
 
6,607

 
83

 
(1
)
 
6,689

Residential mortgage-backed
 
536

 
51

 

 
587

Asset-backed
 
4,543

 
15

 

 
4,558

 
 
$
295,990

 
$
8,080

 
$
(3,954
)
 
$
300,116

As at December 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Non-OTTI
 
Fair
Value
U.S. government and agency
 
$
25,102

 
$
80

 
$
(341
)
 
$
24,841

Non-U.S. government
 
89,631

 
42

 
(3,889
)
 
$
85,784

Corporate
 
182,773

 
1,040

 
(3,429
)
 
$
180,384

Municipal
 
5,959

 
4

 
(36
)
 
$
5,927

Residential mortgage-backed
 
665

 
51

 
(1
)
 
$
715

Asset-backed
 
4,660

 

 
(10
)
 
$
4,650

 
 
$
308,790

 
$
1,217

 
$
(7,706
)
 
$
302,301

 The contractual maturities of our fixed maturity and short-term investments classified as available-for-sale are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
As at September 30, 2016
 
Amortized
Cost
 
Fair
Value
 
% of Total
Fair
Value
One year or less
 
$
45,038

 
$
43,865

 
14.6
%
More than one year through two years
 
71,583

 
70,910

 
23.6
%
More than two years through five years
 
84,842

 
84,226

 
28.1
%
More than five years through ten years
 
41,579

 
43,986

 
14.7
%
More than ten years
 
47,869

 
51,984

 
17.3
%
Residential mortgage-backed
 
536

 
587

 
0.2
%
Asset-backed
 
4,543

 
4,558

 
1.5
%
 
 
$
295,990

 
$
300,116

 
100.0
%

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)




Gross Unrealized Losses
The following tables summarize our fixed maturity and short-term investments in a gross unrealized loss position:
 
 
12 Months or Greater
 
Less Than 12 Months
 
Total
As at September 30, 2016
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
Fixed maturity and short-term investments, at fair value
 
 
 
 
 
 
 
 
 
 
 
 
Non-U.S. government
 
$
8,861

 
$
(1,679
)
 
$
18,835

 
$
(618
)
 
$
27,696

 
$
(2,297
)
Corporate
 
9,718

 
(1,479
)
 
28,066

 
(177
)
 
37,784

 
(1,656
)
Municipal
 

 

 
696

 
(1
)
 
696

 
(1
)
Total
 
$
18,579

 
$
(3,158
)
 
$
47,597

 
$
(796
)
 
$
66,176

 
$
(3,954
)
Fixed maturity investments, at amortized cost
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$

 
$

 
$
5,437

 
$
(73
)
 
$
5,437

 
$
(73
)
Corporate
 
13,751

 
(809
)
 
21,770

 
(273
)
 
35,521

 
(1,082
)
Total
 
13,751

 
(809
)
 
27,207

 
(346
)
 
40,958

 
(1,155
)
Total fixed maturity and short-term investments
 
$
32,330

 
$
(3,967
)
 
$
74,804

 
$
(1,142
)
 
$
107,134

 
$
(5,109
)
  
 
 
12 Months or Greater
 
Less Than 12 Months
 
Total
As at December 31, 2015
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
Fixed maturity and short-term investments, at fair value
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$
523

 
$
(2
)
 
$
21,694

 
$
(339
)
 
$
22,217

 
$
(341
)
Non-U.S. government
 
18,995

 
(2,633
)
 
50,080

 
(1,256
)
 
69,075

 
(3,889
)
Corporate
 
54,295

 
(2,394
)
 
81,047

 
(1,035
)
 
135,342

 
(3,429
)
Municipal
 

 

 
4,609

 
(36
)
 
4,609

 
(36
)
Residential mortgage-backed
 
71

 
(1
)
 

 

 
71

 
(1
)
Asset-backed
 
4,649

 
(10
)
 

 

 
4,649

 
(10
)
Total
 
$
78,533

 
$
(5,040
)
 
$
157,430

 
$
(2,666
)
 
$
235,963

 
$
(7,706
)
Fixed maturity investments, at amortized cost
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$
7,221

 
$
(48
)
 
$
12,024

 
$
(410
)
 
$
19,245

 
$
(458
)
Non-U.S. government
 
24,424

 
(1,255
)
 
8,885

 
(238
)
 
33,309

 
(1,493
)
Corporate
 
209,000

 
(9,038
)
 
330,833

 
(14,260
)
 
539,833

 
(23,298
)
Total
 
240,645

 
(10,341
)
 
351,742

 
(14,908
)
 
592,387

 
(25,249
)
Total fixed maturity and short-term investments
 
$
319,178

 
$
(15,381
)
 
$
509,172

 
$
(17,574
)
 
$
828,350

 
$
(32,955
)
As at September 30, 2016 and December 31, 2015, the number of securities classified as available-for-sale in an unrealized loss position was 123 and 332, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 48 and 124, respectively.
As at September 30, 2016 and December 31, 2015, the number of securities classified as held-to-maturity in an unrealized loss position was 10 and 109, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 3 and 53, respectively.

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Other-Than-Temporary Impairment
For the nine months ended September 30, 2016 and 2015, we did not recognize any other-than-temporary impairment losses on either our available-for-sale or held-to-maturity securities. We determined that no credit losses existed as at September 30, 2016. A description of our other-than-temporary impairment process is included in Note 2 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015. There were no changes to our process during the nine months ended September 30, 2016.
Credit Ratings
The following table sets forth the credit ratings of our fixed maturity and short-term investments as of September 30, 2016:
 
 
Amortized
Cost
 
Fair Value
 
% of Total
Investments
 
AAA Rated
 
AA Rated
 
A Rated
 
BBB
Rated
 
Non-
Investment
Grade
 
Not Rated
Fixed maturity and short-term investments, at fair value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$
823,515

 
$
831,902

 
13.3
%
 
$
805,241

 
$
26,661

 
$

 
$

 
$

 
$

Non-U.S. government
 
409,975

 
404,724

 
6.5
%
 
132,142

 
205,155

 
47,369

 
20,058

 

 

Corporate
 
2,760,381

 
2,788,448

 
44.5
%
 
145,128

 
492,504

 
1,267,740

 
724,547

 
155,980

 
2,549

Municipal
 
18,588

 
18,777

 
0.3
%
 
6,617

 
9,890

 
2,270

 

 

 

Residential mortgage-backed
 
472,175

 
472,815

 
7.6
%
 
463,098

 
420

 
6,216

 
2,144

 
934

 
3

Commercial mortgage-backed
 
283,510

 
284,147

 
4.5
%
 
105,545

 
39,131

 
80,084

 
20,614

 
1,281

 
37,492

Asset-backed
 
655,961

 
655,037

 
10.5
%
 
221,930

 
133,672

 
193,621

 
34,898

 
70,720

 
196

Total
 
5,424,105

 
5,455,850

 
87.2
%
 
1,879,701

 
907,433

 
1,597,300

 
802,261

 
228,915

 
40,240

% of total fair value
 
 
 
 
 
 
 
34.5
%
 
16.6
%
 
29.3
%
 
14.7
%
 
4.2
%
 
0.7
%
Fixed maturity investments, at amortized cost
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
19,793

 
20,957

 
0.3
%
 
19,560

 
1,380

 

 

 

 
17

Non-U.S. government
 
27,554

 
28,249

 
0.5
%
 

 
9,467

 
18,782

 

 

 

Corporate
 
715,255

 
753,790

 
12.0
%
 
41,408

 
116,411
 
487,062
 
108,838

 

 
71

Total
 
762,602

 
802,996

 
12.8
%
 
60,968

 
127,258

 
505,844

 
108,838

 

 
88

% of total fair value
 
 
 
 
 
 
 
7.6
%
 
15.8
%
 
63.0
%
 
13.6
%
 
%
 
%
Total fixed maturity and short-term investments
 
$
6,186,707

 
$
6,258,846

 
100.0
%
 
$
1,940,669

 
$
1,034,691

 
$
2,103,144

 
$
911,099

 
$
228,915

 
$
40,328

% of total fair value
 
 
 
 
 
 
 
31.0
%
 
16.5
%
 
33.6
%
 
14.6
%
 
3.7
%
 
0.6
%








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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)




Other Investments, at fair value
The following table summarizes our other investments carried at fair value:
 
 
September 30,
2016
 
December 31,
2015
Private equities and private equity funds
 
$
254,561

 
$
254,883

Fixed income funds
 
255,665

 
291,736

Fixed income hedge funds
 
105,145

 
109,400

Equity funds
 
175,896

 
147,390

Multi-strategy hedge fund
 
102,646

 
99,020

Real estate debt fund
 

 
54,829

CLO equities
 
67,648

 
61,702

CLO equity funds
 
14,593

 
13,928

Call options on equities
 
8,500

 

Other
 
1,042

 
1,144

 
 
$
985,696

 
$
1,034,032

The valuation of our other investments is described in Note 4 - "Fair Value Measurements." Due to a lag in the valuations of certain funds reported by the managers, we may record changes in valuation with up to a three-month lag. We regularly review and discuss fund performance with the fund managers to corroborate the reasonableness of the reported net asset values and to assess whether any events have occurred within the lag period that would affect the valuation of the investments. The following is a description of the nature of each of these investment categories:
Private equities and private equity funds invest primarily in the financial services industry. All of our investments in private equities and private equity funds are subject to restrictions on redemptions and sales that are determined by the governing documents and limit our ability to liquidate those investments. These restrictions have been in place since the dates of our initial investments.
Fixed income funds comprise a number of positions in diversified fixed income funds that are managed by third-party managers. Underlying investments vary from high-grade corporate bonds to non-investment grade senior secured loans and bonds, but are generally invested in liquid fixed income markets. These funds have regularly published prices. The funds have liquidity terms that vary from daily up to quarterly.
Fixed income hedge funds invest in a diversified portfolio of debt securities. The hedge funds have imposed lock-up periods of up to three years from the time of initial investment. Once eligible, redemptions are permitted quarterly with 90 days’ notice.
Equity funds invest in a diversified portfolio of international publicly traded equity securities. The funds are eligible for bi-monthly redemption.
Multi-strategy hedge fund comprises an investment in a hedge fund that invests in a variety of asset classes including funds, fixed income, equity securities and other investments. The fund is eligible for quarterly redemption after November 1, 2016. Once eligible, redemptions will be permitted quarterly with 60 days’ notice.
Real estate debt fund invests primarily in U.S. commercial real estate loans and securities. A redemption request for this fund can be made 10 days after the date of any monthly valuation. The fund was fully redeemed as at March 31, 2016.
CLO equities comprise investments in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans. CLO equities denote direct investments by us in these securities.
CLO equity funds comprise two funds that invest primarily in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans. One of the funds has a fair value of $3.8 million, part of a self-liquidating structure that is expected to pay out over two to six years. The other fund has a fair value of $10.8 million and is eligible for redemption in 2018.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)




Call options on equities comprise directly held options to purchase the common equity of publicly traded corporations.
Other primarily comprises a fund that provides loans to educational institutions throughout the United States and its territories.
Investments of $0.8 million in fixed income hedge funds were subject to gates or side-pockets, where redemptions are subject to the sale of underlying investments. A gate is the ability to deny or delay a redemption request, whereas a side-pocket is a designated account for which the investor loses its redemption rights.
As at September 30, 2016, we had unfunded commitments to private equity funds of $122.8 million.
Other Investments, at cost
Our other investments carried at cost of $129.4 million as of September 30, 2016 consist of life settlement contracts acquired during 2015. During the nine months ended September 30, 2016 and 2015, net investment income included $16.8 million and $9.3 million, respectively, related to investments in life settlements. There were impairment charges of $3.6 million and $nil recognized in net realized and unrealized gains/losses during the nine months ended September 30, 2016 and 2015, respectively. The following table presents further information regarding our investments in life settlements as of September 30, 2016 and December 31, 2015.
 
 
September 30, 2016
 
December 31, 2015

 
Number of Contracts
 
Carrying
Value
 
Face Value (Death Benefits)
 
Number of Contracts
 
Carrying
Value
 
Face Value (Death Benefits)
Remaining Life Expectancy of Insureds:
 
 
 
 
 
 
 
 
 
 
 
 
0 – 1 year
 
2

 
$
448

 
$
700

 
2

 
$
417

 
$
700

1 – 2 years
 
5

 
6,060

 
9,500

 
4

 
3,032

 
5,000

2 – 3 years
 
14

 
21,585

 
46,885

 
19

 
24,072

 
39,123

3 – 4 years
 
18

 
16,076

 
32,272

 
14

 
9,695

 
20,932

4 – 5 years
 
17

 
8,911

 
20,302

 
16

 
9,025

 
22,457

Thereafter
 
183

 
76,351

 
427,489

 
221

 
86,830

 
491,499

Total
 
239

 
$
129,431

 
$
537,148

 
276

 
$
133,071

 
$
579,711

Remaining life expectancy for year 0-1 in the table above references policies whose current life expectancy is less than 12 months as of the reporting date. Remaining life expectancy is not an indication of expected maturity. Actual maturity in any category above may vary significantly (either earlier or later) from the remaining life expectancies reported.
At September 30, 2016, our best estimate of the life insurance premiums required to keep the policies in force, payable in the 12 months ending September 30, 2017 and the four succeeding years ending September 30, 2021 is $17.7 million, $17.3 million, $17.5 million, $16.9 million and $15.3 million, respectively.

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)




Net Realized and Unrealized Gains (Losses)
Components of net realized and unrealized gains (losses) for the three and nine months ended September 30, 2016 and 2015 are summarized as follows:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2016

2015
 
2016
 
2015
Net realized gains (losses) on sale:
 
 
 
 
 
 
 
 
Gross realized gains on fixed maturity securities, available-for-sale
 
$
12

 
$
126

 
$
391

 
$
279

Gross realized (losses) on fixed maturity securities, available-for-sale
 

 
(99
)
 
(244
)
 
(108
)
Net realized gains (losses) on fixed maturity securities, trading
 
3,826

 
(5,207
)
 
3,449

 
(1,455
)
Net realized gains on equity securities, trading
 
1,393

 
3,959

 
2,421

 
19,845

Total net realized gains (losses) on sale
 
$
5,231

 
$
(1,221
)
 
$
6,017

 
$
18,561

Net unrealized gains (losses):
 


 
 
 
 
 
 
Fixed maturity securities, trading
 
$
14,670

 
$
(875
)
 
$
96,882

 
$
(9,940
)
Equity securities, trading
 
2,866

 
(7,996
)
 
5,089

 
(21,560
)
Other investments
 
47,655

 
(5,038
)
 
38,385

 
29,580

Total net unrealized gains (losses)
 
65,191

 
(13,909
)
 
140,356

 
(1,920
)
Net realized and unrealized gains (losses)
 
$
70,422

 
$
(15,130
)
 
$
146,373

 
$
16,641

The gross realized gains and losses on available-for-sale securities included in the table above resulted from sales of $2.4 million and $36.0 million for the three and nine months ended September 30, 2016, respectively, and $11.8 million and $71.5 million for the three and nine months ended September 30, 2015, respectively.
Net Investment Income
Major categories of net investment income for the three and nine months ended September 30, 2016 and 2015 are summarized as follows:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2016
 
2015
 
2016
 
2015
Fixed maturity investments
 
$
38,018

 
$
31,178

 
$
115,127

 
$
85,978

Short-term investments and cash and cash equivalents
 
908

 
1,181

 
2,957

 
5,287

Equity securities
 
1,021

 
1,407

 
3,530

 
4,403

Other investments
 
4,997

 
3,451

 
16,724

 
7,891

Funds held
 
7,333

 
174

 
22,570

 
163

Life settlements and other
 
7,043

 
6,712

 
17,204

 
9,807

Gross investment income
 
59,320

 
44,103

 
178,112

 
113,529

Investment expenses
 
(1,774
)
 
(3,307
)
 
(6,280
)
 
(7,662
)
Net investment income
 
$
57,546

 
$
40,796

 
$
171,832

 
$
105,867


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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)




Restricted Assets
We are required to maintain investments and cash and cash equivalents on deposit to support our insurance and reinsurance operations. The investments and cash and cash equivalents on deposit are available to settle insurance and reinsurance liabilities. We also utilize trust accounts to collateralize business with our insurance and reinsurance counterparties. These trust accounts generally take the place of letter of credit requirements. The assets in trusts as collateral are primarily highly rated fixed maturity securities. The carrying value of our restricted assets, including restricted cash of $517.9 million and $511.3 million, as of September 30, 2016 and December 31, 2015, respectively, was as follows: 
 
 
September 30,
2016
 
December 31,
2015
Collateral in trust for third party agreements
 
$
2,936,408

 
$
3,053,692

Assets on deposit with regulatory authorities
 
904,259

 
915,346

Collateral for secured letter of credit facilities
 
195,318

 
212,544

Funds at Lloyd's (1)
 
358,710

 
382,624

 
 
$
4,394,695

 
$
4,564,206

(1) Our underwriting businesses include three Lloyd's syndicates. Lloyd's determines the required capital principally through the annual business plan of each syndicate. This capital is referred to as "Funds at Lloyd's" ("FAL") and will be drawn upon in the event that a syndicate has a loss that cannot be funded from other sources. As at September 30, 2016, our combined Funds at Lloyd's were comprised of cash and investments of $311.2 million and letters of credit supported by collateral of $47.5 million. In November 2016, we entered into an unsecured letter of credit agreement for Funds at Lloyd’s purposes ("FAL Facility") to issue up to $140.0 million of letters of credit, with a provision to increase the facility up to $200.0 million. The FAL Facility is available to satisfy our Funds at Lloyd’s requirements and replaces certain restricted assets and letter of credit arrangements. The FAL Facility expires in 2021.
 

4. FAIR VALUE MEASUREMENTS
Fair Value Hierarchy
Fair value is defined as the price at which to sell an asset or transfer a liability (i.e. the "exit price") in an orderly transaction between market participants. We use a fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The hierarchy is broken down into three levels as follows:
Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments.
Level 2 - Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.
Level 3 - Valuations based on unobservable inputs where there is little or no market activity. Unadjusted third party pricing sources or management's assumptions and internal valuation models may be used to determine the fair values.

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)




We have categorized our investments that are recorded at fair value on a recurring basis among levels based on the observability of inputs as follows:  
 
 
September 30, 2016
Investments:
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total Fair
Value
U.S. government and agency
 
$

 
$
831,902

 
$

 
$
831,902

Non-U.S. government
 

 
404,724

 

 
404,724

Corporate
 

 
2,727,654

 
60,794

 
2,788,448

Municipal
 

 
18,777

 

 
18,777

Residential mortgage-backed
 

 
471,163

 
1,652

 
472,815

Commercial mortgage-backed
 

 
261,953

 
22,194